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Don founded Kamakura Corporation in April 1990 and currently serves as its chairman and chief executive officer where he focuses on enterprise wide risk management and modern credit risk technology. His primary financial consulting and research interests involve the practical application of leading edge financial theory to solve critical financial risk management problems. Don was elected to the 50 member RISK Magazine Hall of Fame in 2002 for his work at Kamakura. Read More

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May 22

Written by: Donald van Deventer
5/22/2009 9:21 AM 

Z-man, senior Regional Banker, pointed out this quote from Donald Sull, faculty director of executive education at the London Business School, "My own sense is that we’ve got a lot of heroes of the last war still running around," he says. "[A bank] CEO is always a hard job, [but] it’s a much easier job when you’ve got a lot of tailwind. I think a lot of the current CEOs confused tailwind for horsepower." Institutional Investor, April 9, 2009.

Rev. Roland Bunda, S.M., pastor of St. Anthony’s Catholic Community, Wailuku, Maui: “Never, ever, pray for humility.  Life and God have expert ways of keeping you humble on a daily basis”

Lawrence G. McDonald with Patrick Robinson, “A Colossal Failure of Common Sense,” page 234: “The World War I British Army was once described by a German general as ‘lions led by donkeys.’ Mike Gelband’s [head of fixed income] opinion of the chain of command in Lehman’s little army could scarcely have been more succinctly phrased.”

Lawrence G. McDonald with Patrick Robinson, “A Colossal Failure of Common Sense,” quoting Lehman Brothers CEO Dick Fuld on page 317: “The key to risk management is never putting yourself in a position where you cannot live to fight another day.”

Former Citigroup executive, “Chuck Prince going down to the corporate investment bank in late 2002 was the start of that process,” a former Citigroup executive said of the bank’s big C.D.O. push. “Chuck was totally new to the job. He didn’t know a C.D.O. from a grocery list, so he looked for someone for advice and support. That person was Rubin. And Rubin had always been an advocate of being more aggressive in the capital markets arena. He would say, ‘You have to take more risk if you want to earn more.’ ” Quoted in the New York Times, November 22, 2008.”

Former Citigroup CEO Charles Prince, "Nobody could have predicted that the bank’s highest-rated collateralized debt obligations -- created by repackaging mortgage bonds into new securities -- would lose so much money, Prince said. The chief risk officer didn’t understand the risks, nor did Citigroup’s senior traders and bankers, he said." Quoted on Bloomberg.com, April 8, 2010, based on April 7, 2010 comments to the Financial Crisis Inquiry Commission.

American Banker on Citigroup Executives testimony before the Financial Crisis Inquiry Commission," If there was an underlying consensus, it was this: the financial crisis was either entirely unforseeable or should have been spotted first by somebody else." www.americanbanker.com, April 8, 2010.

John Thain, "The bankers and traders dealing in CDOs didn't understand what they were doing, John Thain said in a recent speech; ‘To model correctly one tranche of one CDO took about three hours on one of the fastest computers in the United States. There is no chance that pretty much anybody understood what they were doing with these securities. Creating things that you don’t understand is really not a good idea no matter who owns it,’ the former Merrill Lynch chief executive said in a speech this month, according to Financial News.” Business Insider, October 7, 2009.

Robert Rubin, Director, Citigroup: "I tried to help people as they thought their way through this. Myself, at that point, I had no familiarity at all with CDOs." “Robert Rubin on the Job He Never Wanted,” quoted by Carol Loomis, Fortune, November 28, 2007.

Alan Greenspan, former Chairman of the Board of Governors of the Federal Reserve, "Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity are in a state of shocked disbelief." October, 2008.

Claire Robinson, Moody’s Investors Service: “We aren’t loan officers,” quoted by Roger Lowenstein, “Triple A Failure,” New York Times, April 27, 2008.

Society of Actuaries, motto, 2010: “The work of science is to substitute facts for appearances and demonstrations for impressions.”

 

John Maynard Keynes, “A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him.”  Quoted by Michael Pomerleano and Andrew Sheng, “A Failure of Public Governance,” Financial Times Economists Forum, January 26, 2010.

Frunobulax, Credit Expert: “A PD model is like the Terminator: It can't be bargained with. It can't be reasoned with. It doesn't feel pity, or remorse, or fear. The PD is just that, the PD. No politics, no old habits, no philosophy: the drivers either work or they do not work.” E-mail, May 22, 2009.

Anonymous risk manager at company formerly rated AAA: “Given our recent economic capital problems here at _______, our Board has expressed their desire to acquire the Risk Management architectures that were deemed unnecessary by our ex-CEO and emphasized their desire to dedicate the necessary funding to this effort,” e-mail, March 18, 2008.

John Thain, CEO, Merrill Lynch: “There were at least two major problems. One was that credit risk management was separate from market risk management, and that doesn't make sense, because they are both permutations of the other. We are combining market and credit risk. “Merrill had a risk committee. It just didn't function. So now when we have a weekly meeting, the head of fixed income and equities show up. I show up, and the risk heads show up. It functions and functions across the businesses.” Quoted by Susanne Craig and Randall Smith in “Merrill's Risk Manager, New Chief John Thain on What Led to the Losses and Why He's Hiring Goldman Sachs Executives,” Wall Street Journal, January 18, 2008; Page C1

Z-man, Senior Regional Banker: “It’s natural for human beings to want to swim with the tide. A risk manager has to swim against it.” Telephone conversation, May 21, 2009. “

Ann Reese, chairwoman of Merrill's audit committee, said the board had had ‘numerous discussions’ with management about its investments in the months before the credit crisis. The board initially didn't realize that prices of CDOs were linked to the U.S. housing market, she said…’The CDO position did not come to the board's attention until late in the process,’ said Reese, a former chief financial officer of ITT Corp. who now is co-executive director of the non-profit Center for Adoption Policy. ‘For reasons that we have subsequently explored, there was not a sense that these triple-A securities should be included in the overall exposure to residential real estate.’"Bloomberg.com, April 24, 2008, reporting on the Merrill Lynch shareholders meeting.

UBS AG: "Whilst there were a number of credit spread RFL [risk factor limits] limits in place, there was no RFL [risk factor limit] that specifically addressed certain factors relevant to Subprime exposure, such as delinquency rates or residential real estate price developments." Shareholder's Report on UBS's Write-downs, UBS AG, April 18, 2008, page 19.

Vikram Pandit, CEO, Citigroup: "What went wrong is we had tremendous concentration in the sense we put a lot of our money to work against U.S. real estate," Pandit said in an interview on PBS' Charlie Rose show. "We got here by lending money, and putting money to work in the U.S. real estate market, in a size that was probably larger than what we ought to have done on a diversification basis.“ Quote from PBS’ Charlie Rose show, November 25, 2008, Reuters.com.

Mervyn King, Governor of the Bank of England: "Banks have come to realize in the recent crisis that they are paying the price for having designed compensation packages which provide incentives that are not, in the long run, in the interests of the banks themselves, and I would like to think that would change," Reuters.com, May 7, 2008.

George Santayana, "Those who cannot remember the past are doomed to repeat it," (The Life of Reason, Volume I, 1905). John Lennon, "Life is what happens to you while you're busy making other plans." Double Fantasy album, 1980. Detective Lord Peter Wimsey, "I have a trivial mind. Detail delights me." Dorothy L, Sayers, Unnatural Death, 1927, HarperCollins Publishers, page 5. G.

K. Chesterton, "And being good is an adventure far more violent and daring than sailing around the world." (The Club of Queer Trades, 1905, Wildside Press Edition, page 36. Happy aloha Friday. Hana hou.

Donald R. van Deventer
Kamakura Corporation
Honolulu, May 22, 2009

 

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